An employee who claimed an agreement he entered to arbitrate all employment related claims was unconscionable has his challenged rejected as the Court found the arbitration agreement to be neither procedurally or substantively unconscionable.

In the case of Fox v. Computer World Services Corp., et al. (2013), when Plaintiff Phillip Fox (“Fox”) began his employment with Computer World Services Corp. and C2 Essential, Inc. (joint employers of Fox and collectively referred to as “Defendants”) he electronically signed a number of forms, one of which was an arbitration agreement.  The arbitration agreement provided that the parties agreed to arbitrate, inter alia, any claims alleging violation of federal and state statutes.  Approximately eighteen months after he began working for Defendants, Fox’ employment was terminated.  Fox alleged that his job termination was in violation of the Age Discrimination in Employment Act, and also alleged retaliation and violations of the District of Columbia Human Rights Act.  Fox refused to arbitrate his claims and instead sued Defendants in state court.  Defendants removed the case to federal court and also filed a motion to dismiss and to compel arbitration.    

For his part, Fox challenged the arbitration agreement and claimed it was procedurally unconscionable because it was buried within a larger series of employment documents; it was presented to him on a take it or leave it basis; and, he did not understand that by acknowledging the arbitration agreement he was agreeing to the terms within the agreement.  Fox also challenged the agreement because he signed it electronically.  The Court rejected each of these arguments and found that the Agreement to Arbitrate was presented in a separate document and the title of the document was in all caps and in bold font.  In addition, the Court found that immediately before the signature line of the agreement was an acknowledgement, again in all caps, which stated that the signatory read and understood the terms of the agreement and was been provided the opportunity to discuss the agreement with legal counsel.  Finding that Fox had a choice as to whether to enter the agreement, acknowledged that he read and understood the agreement and was given a chance to consult legal counsel, the Court found the arbitration agreement was not procedurally unconscionable. 

Fox also raised a number of substantive challenges to the arbitration agreement, including challenging the agreement on the grounds that it contained a fee-sharing provision wherein all parties were required to share the fees and costs of the arbitrator in an amount and manner determined by the arbitrator.  While the Court easily disposed of most of Fox’ substantive challenges to the arbitration agreement, the fee- sharing issue raised by Fox and whether forcing him to go through arbitration would be prohibitively expensive was not so easily resolved.  Ultimately, the Court found that the risk that Fox might incur prohibitive costs was too speculative to invalidate the agreement.  The Court relied on the fact that Defendants had waived the fee-sharing provision in the agreement, and that the agreement (although somewhat ambiguous) appeared to allow the arbitrator discretion as to how to allocate fees and costs. Therefore, Fox’ argument as to what portion of those fees he would have to bear were too speculative to deem the arbitration agreement substantively unconscionable.  The Court held that the arbitration agreement was enforceable and compelled Fox to arbitrate his claims.

Written By Malik K. Cutlar 

Since the amount of damages sought on a lost profits claim can be substantial, any variations in the standard will likely have a drastic impact on the recovery.  The Maryland Court of Appeals (the highest court in the state) in CR-RSC Tower I, LLC v. RSC Tower I, LLC recently addressed the issue of whether the trial court properly excluded post-breach market conditions to mitigate consequential lost profits in a jury trial which resulted in an award of $36 Million in damages. 

The landlord defendants in CR-RSC Tower I, LLC deliberately breached a real estate agreement causing plaintiff developer’s financing to fall through.  The developer sued for breach of contract and sought recovery of lost profits basing its market projections at the time of the breach.  The landlords did not dispute the breach, but countered that the current market conditions were relevant and necessary to meet the requirement that lost profits be proven with “reasonable certainty.” The landlords sought to offer the testimony of an expert to show that the developer would not have suffered any damages given the subsequent downturn in the real estate market. 

The Court explained that the contract in this case did not address or allocate the possibility of future market downturns.  The only evidence established that, at the time the parties entered into the agreement, the parties contemplated a relatively stable market and did not foresee the cataclysmic crash of real estate.  Thus, evidence of post-breach booms or even busts was not relevant to the determination of the expected value of performance as of the time of breach.  As a result, the Court upheld the trial court’s exclusion of the defendants’ evidence of “post-breach market conditions.” 

Written By Angela H. France

Please see, Angela France's article featured within Virginia Business Law Update.

If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.

In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.

This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.

Written By Malik K. Cutlar